03 Jun Question I. The Ricardian Model 1. Answer the questions below using the information given by the following
Question
I. The Ricardian Model
1. Answer the questions below using the information given by the following table.
Home Foreign Absolute
country country advantage
Number of bicycles
produced per hour 4 2 ?
Number of snowboards
produced per hour 6 8 ?
Comparative advantage ? ?
a. Complete the above table.
b. Which country has an absolute advantage in the production of bicycles?
c. Which country has an absolute advantage in the production of snowboards?
d. What is the opportunity cost of bicycles in terms of snowboards at Home? What is the
opportunity cost of bicycles in terms of snowboards in Foreign?
e. Which product will Home export and which product will Foreign export? Briey explain
why.
2. Assume that Home and Foreign produce two goods, televisions and cars, and use the
following information to answer the questions.
In the no-trade equilibrium
Home country Foreign country
WageTV
= 12 WageC
=? Wage
TV
=? Wage
C
= 6
MPLTV
= 2 MPLC
=? MPL
TV
=? MPL
C
= 1
PTV
=? PC
= 4 P
TV
= 3 P
C
=?
a. What is the marginal product of labor for televisions and cars in the Home country?
What is the no-trade relative price of televisions at Home?
b. What is the marginal product of labor for televisions and cars in Foreign? What is the
no-trade relative price of televisions in Foreign?
c. Suppose the world relative price of televisions in the trade equilibrium is PTV =P
C
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